Despite the existence of laws that protect whistleblowers, some violations of securities law and other regulations continue to go unreported because would-be whistleblowers are intimidated into remaining silent. There are various tactics that companies use to silence would-be whistleblowers, and a recent case against a Virginia-based company illustrates one of those strategies – the severance agreement that forbids whistleblowing through the use of intimidating language.

A company called Neu-Star recently agreed to pay a hundred and eighty thousand dollars to settle a lawsuit that alleged that the corporation used severance agreements that essentially forbade whistleblowing. The contracts are alleged to have contained a broadly constructed “non-disparagement” clause that prohibited former employees from making any communication to the United States Securities and Exchanges Commission (SEC) that speaks negatively about the company. The severance agreement that Neu-Star was using is alleged to have stated that any former employee who violated the non-disparagement clause of their severance agreement could lose their severance pay. It is easy to see how such language could cause a former employee to fear that anything that they would say to the SEC about a possible violation of securities law could be construed by their former employer as a disparaging remark, which would put their severance pay at risk.

Whistleblower protection laws prohibit public companies from using non-disparagement clauses and other intimidating language in severance agreements. The laws are designed to ensure the freedom of former employees to discuss possible violations of securities law with the SEC. When companies use severance agreements that contain non-disparagement clauses or other language that could cause a former employee to forego reporting a possible violation of securities law, that agreement is said to have had a chilling effect on the former employee. In the Neu-Star case, at least one former employee was so intimidated by the non-disparagement clause contained in their severance agreement that they did not report a possible violation of securities law to the SEC.

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Severance agreements are intended to set out the terms upon which former employees can obtain pay for a specified period following their departure from a company. While it is legal for severance agreements to make demands of former employees for them to be able to collect severance pay, it is not legal for companies to demand that former employees refrain from reporting possible violations of the law. Things like agreements not to work for competing firms are fair and legal, but if your severance agreement has language in it that could cause you to think twice before reporting a violation of securities law or any other laws to the agency charged with investigating such allegations, the agreement may violate whistleblower protection laws. If you know that your company uses such a severance agreement or if you have signed a severance agreement that you feel would prevent you to from reporting possible violations of securities law or other laws in order to ensure that you would receive severance pay, call the Mississippi Whistleblower Attorneys at Barrett Law PLLC. Call our office today, at 1 (800) 707-9577 to set up a free, initial consultation.